Facts
By the 1880s, Standard Oil was using its stranglehold on refining capacity to begin integrating backward into oil exploration and crude oil distribution and forward into retail distribution of its refined products to stores and, eventually, service stations throughout the United States. Standard Oil allegedly used its size and clout to undercut competitors in a number of ways that were considered "anti-competitive," including underpricing and threats to suppliers and distributors who did business with Standard's competitors.
The government sought to prosecute Standard Oil under the Sherman Antitrust Act. The main issue before the Court was whether it was within the power of the Congress to prevent one company from acquiring numerous others through means that might have been considered legal in common law, but still posed a significant constraint on competition by mere virtue of their size and market power, as implied by the Antitrust Act.
Over a period of decades, the Standard Oil Company of New Jersey had bought up virtually all of the oil refining companies in the United States. Initially, the growth of Standard Oil was driven by superior refining technology and consistency in the kerosene products (i.e., product standardization) that were the main use of oil in the early decades of the company's existence. The management of Standard Oil then reinvested their profits in the acquisition of most of the refining capacity in the Cleveland area, then a center of oil refining, until Standard Oil controlled the refining capacity of that key production market.
By 1870, Standard Oil was producing about 10% of the United States output of refined oil. This quickly increased to 20% through the elimination of the competitors in the Cleveland area. Although claims have been made that Standard Oil secretly secured preferential rates from regional rail roads, such a scheme never came into effect, and a more plausible explanation for the rise of Standard Oil was its ability to continuously lower its costs and thereby the cost to the consumer. The resulting competitiveness of Standard Oil compelled the competition to sell out or face bankruptcy, until Standard controlled most of the refining capacity of the U.S.
Read more about this topic: Standard Oil Co. Of New Jersey V. United States
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